What is a financial assessment?<\/h2>\n
A financial assessment is really just a breakdown of your cash, savings and debts.<\/p>\n
- \n
- What do you have that you can cash in to pay off your debt?<\/strong><\/li>\n
- How much debt do you really have?<\/strong><\/li>\n<\/ul>\n
Let’s have a look at what we would use to assess our financial situation in the CBB house.<\/p>\n
In fact, it’s quite simple to this so don’t feel this is something only a specialized person can do.<\/p>\n
- \n
- Debt-<\/strong> Who do we owe money to?<\/strong><\/a> Is there an interest rate? When is it due?<\/li>\n
- Income-<\/strong> How much money do we net each month and from how many income sources<\/strong><\/a>?<\/li>\n<\/ul>\n
As you can see we are evaluating our debt and our income also known as a debt to income ratio<\/strong><\/a>.<\/p>\n
We want to see know what is coming in and how much must go out every month.<\/p>\n
Another thing you will want to consider is what money you already have saved or invested.<\/p>\n
This is where we would document our investment savings such as our Registered Retirement Savings Plan<\/strong><\/a>, Tax-Free Savings Account<\/strong><\/a> and any other investments.<\/p>\n
For a majority of people, money saved in investment portfolios is in there for the long-haul or until retirement.<\/p>\n
However, it’s not uncommon to hear about people cashing in their investments to pay down debt<\/strong><\/a>.<\/p>\n
Don’t forget your savings accounts and not just in Canada.<\/p>\n
Calculate how much money you have saved in any Canadian or foreign bank accounts.<\/p>\n
For example, we have US currency, Canadian currency and British currency that we factor into our net worth<\/strong> each month.<\/p>\n
Credit Card Debt Reduction Strategies<\/h2>\n
![\"credit-card-debt-repayment-strategies\"](\"https:\/\/digitalskyweb.co\/canadianbudgetbinder.com\/wp-content\/uploads\/2020\/01\/credit-card-debt-repayment-strategies.webp\")
Will credit card companies reduce your balance?<\/p>\nProbably not, it’s your debt and your responsibility to pay it back.<\/p>\n
That’s the terms of the credit card that YOU signed up for.<\/p>\n
However, it is worth a phone call to see if they will consider lowering your credit card interest rate<\/strong>.<\/p>\n
By doing so this will help you incur less credit card interest while trying to pay the card off.<\/p>\n
You could also consider a credit card balance transfer option<\/strong><\/a> for 6 months which will buy you some time to pay it off.<\/p>\n
Snowball Debt Reduction<\/h2>\n
For most people with credit card debt using a snowball method<\/a> debt reduction plan<\/strong> is ideal.<\/p>\n
What is a snowball method debt reduction plan?<\/strong><\/p>\n
The snowball method is a debt reduction plan that involves the amount owed and not the interest rate.<\/p>\n
In most cases, these debts come from revolving sources such as credit cards.<\/p>\n
The idea is to pay the smallest balance off first while paying the minimum payment on the larger balances.<\/p>\n
Once you pay one debt you move to the next larger debt until you reach the end.<\/p>\n
Credit Card Promotions Can Be Rewarding<\/h2>\n
Credit card promotions<\/strong> are fantastic if you pay your credit card in full every month.<\/p>\n
You also don’t want to apply for too many credit cards as it will affect your credit rating <\/strong><\/a>the more credit you own.<\/p>\n
Reading the fine print is the last thing anyone wants to do especially when discounts and gifts are dangled in our faces.<\/p>\n
By this I mean, sign up today for our exclusive credit card and get a percentage off your in-store order.<\/p>\n
This is a popular promotion around the holidays when most people are hoping to save money.<\/p>\n
Not understanding the terms of a credit card repayment plan is that we put too much emphasis on the obvious.<\/p>\n
Minimum Payment.<\/strong><\/p>\n
Applying For a Credit Card<\/h2>\n
How do you apply for a credit card?<\/p>\n
In most cases, you would complete an online credit card application or apply at the source such as a department store credit card or gas station credit card and wait to see if it gets approved.<\/p>\n
When approved you get a credit card sent to you in the mail.<\/p>\n
It’s that simple.<\/p>\n
The owner of the credit card must activate it by calling the number on the peelable sticker on the front of the card.<\/p>\n
Once your credit card is activated that plastic card is worth as much as your credit limit.<\/p>\n
A credit limit is an amount of money a credit card company will allow you to spend or use as cash-back (if applicable).<\/p>\n
What do most credit card holders do?<\/strong><\/p>\n
They spend money on their cards and wait for the bill to arrive.<\/p>\n
Then what happens?<\/strong><\/p>\n
Let’s take a look at the right and wrong way to use a credit card.<\/p>\n
How to use a credit card<\/h2>\n
- \n
- Purchase an item(s)
\n<\/strong><\/li>\n- Pay with credit card<\/strong><\/li>\n
- Receive credit card bill<\/strong><\/li>\n
- Pay the balance in full BEFORE the due date.
\n<\/strong><\/li>\n<\/ul>\nHow not to use a credit card<\/h2>\n
- \n
- Purchase an item(s)<\/strong><\/li>\n
- Pay with credit card<\/strong><\/li>\n
- Receive credit card bill<\/strong><\/li>\n
- Pay the minimum balance as suggested<\/strong><\/li>\n
- Continue using the credit card <\/strong><\/li>\n<\/ul>\n
As humans, our mind gravitates to that smaller number and in this case, the minimum payment due.<\/p>\n
If money is tight or if you struggle to prioritize your financial situation that number looks like a cherry on a sundae.<\/p>\n
Reducing debt quickly is only an option if you have the cash to do<\/strong> so however that’s not often the case.<\/p>\n
This is why credit cards can be a deadly payment source for people who lack financial discipline.<\/p>\n
You might even be that person who applies for a credit card just to pay your bills.<\/p>\n
These types of behaviours are what get people into consumer proposals and in some cases, bankruptcy.<\/p>\n
5 Debt Reduction Strategies for 2020<\/h2>\n
![\"debt-reduction-strategies\"](\"https:\/\/digitalskyweb.co\/canadianbudgetbinder.com\/wp-content\/uploads\/2020\/01\/debt-reduction-strategies.webp\")
We’ve already discussed a financial assessment and debt to income ratio above but I want to look at numbers 3 to 5.<\/p>\n- \n
- Financial Assessment<\/strong>
\n<\/strong><\/li>\n- Decrease Debt to Income Ratio<\/strong><\/li>\n
- Budgeting<\/strong><\/li>\n
- Increase Income<\/strong><\/li>\n
- Financial Fast<\/strong><\/li>\n<\/ol>\n
In order to decrease your debt to income ratio, you can start a financial fast, budget your money or increase your income.<\/p>\n
These are three ways that I’ve suggested on this blog for years and will always advocate as a financial blogger.<\/p>\n
Budgeting<\/h2>\n
![\"Screenshot](\"https:\/\/canadianbudgetbinder.com\/wp-content\/uploads\/2019\/12\/Screenshot-of-2020-CBB-Monthly-Budget.png\")
<\/a><\/p>\nYou MUST use a budget no matter how much debt you have or don’t have.<\/p>\n
I don’t care if you earn a million dollars a year, you need a budget<\/strong>.<\/p>\n
At the Canadian Budget Binder level, there are no excuses for not budgeting because we’ve done the hard part for you.<\/p>\n
Our Excel budgets are absolutely free<\/strong><\/a> and you can play around with them as you see fit.<\/p>\n
If the pen and paper method is more your style you can also print our basic budget<\/a><\/strong> and stick it in your budget binder.<\/p>\n
Whatever method of budgeting you chose whether it be budgeting jars<\/strong><\/a>, envelope budgeting <\/strong><\/a>or using cash<\/strong><\/a> do it right.<\/p>\n
Don’t half-ass the budgeting process because that’s the return on investment you’ll get.<\/p>\n
Increase Income<\/h2>\n
In the short term, both Mrs. CBB and I needed to find a way to increase our income when she lost her job.<\/p>\n
We had a debt to repay which was our mortgage at the time so we looked at options to increase income.<\/p>\n
For the quick-fix way to increase income, we used focus groups, consumer product testing, coupons<\/strong><\/a> and rewards programs<\/strong><\/a> (which we still use today) to offset expenses.<\/p>\n
This allowed us to save money in one area so we could apply it in another.<\/p>\n
Related:<\/strong> Why a second income may not be enough<\/strong><\/a><\/p>\n
It worked and was part of how we paid our mortgage off in 5 years<\/strong><\/a> which is considerably fast.<\/p>\n
I also worked as much overtime that was offered to me and took a second job.<\/p>\n
My second job was part-time<\/strong><\/a> and my foot in the door to my full-time career so it led to something great and wonderful.<\/p>\n
Lastly, I started this finance blog which now earns me a monthly five-figure income<\/strong> which will only increase.<\/p>\n
- Decrease Debt to Income Ratio<\/strong><\/li>\n
- Pay with credit card<\/strong><\/li>\n
- Pay with credit card<\/strong><\/li>\n
- Income-<\/strong> How much money do we net each month and from how many income sources<\/strong><\/a>?<\/li>\n<\/ul>\n
- How much debt do you really have?<\/strong><\/li>\n<\/ul>\n